In a speech delivered before the Yale Socialist Club a decade after his return to New Haven,
Irving Fisher related this minor incident to his stay in Santa Barbara:
Discovering that the man who came to massage him was a Socialist and believed that "interest
is the basis of capitalism and is robbery," my father determined to make the most of his
To the question "How much do I owe you?" the masseur replied, "Thirty Dollars."
"Very well. I will give you a note payable a hundred years hence. I suppose you have no
objection to taking this note without interest. At the end of that time you, or perhaps your
grandchildren, can redeem it."
"But I cannot afford to wait that long."
"I thought you said that interest was robbery. If interest is robbery, you ought to be willing to
wait indefinitely for the money.
If you were willing to wait ten years, how much would you
"Well, I would have to get more than thirty dollars."
With a gleam of triumph, Father thrust home. "That is interest."
[Irving Norton Fisher, My Father Irving Fisher (New York: Comet, 1956), p.77]
The Idea of Interest
We may never know when finance began, because financial contracts are as
old as written language—in fact, writing appears to have been invented for
the purposes of recording financial deals.
The first archaeological traces of
financial activity appear in the earliest urban civilizations in the Near east.
What gave the ancient Sumerians the idea of charging each other interest?
Linguistic evidence provides a clue.
In the Sumerian language, the word for
interest, mash, was also the term for calves.
In ancient Greek, the word for
interest, tokos, also refers to the offspring of cattle.
The Latin term pecus,
or flock, is the root of our word “pecuniary.” The Egyptian word for
interest, ms, means “to give birth.” All these terms point to the derivation of
interest rates as the natural multiplication of livestock.
[Financing Civilization, by William Goetzmann]
The Time Value of Money
Why is time = money?
Positive interest rates/returns.
The time value of money is critical for the comparison of cash flows with
different timing (e.g., project evaluation, security valuation).